Life after Debt

The Greek debt exchange (PSI) that took place in March 2012 was unprecedented in two ways: it was the biggest sovereign default ever and the first within the euro area. This paper examines the debt exchange and the subsequent debt buyback with a view to drawing lessons for policymakers and market participants. It discusses the interaction between the political dimension and the market perception, including areas of actual or potential conflicts between the two. The paper does not address Greece’s longer-term prospects for debt sustainability or euro area membership, but instead focuses narrowly on an assessment of the debt exchange and its aftermath, taking into account its impact on the broader euro area crisis.